RBNZ rate hold likely, but watch for tone shift - TDS

Key points from a TDS note regarding New Zealand's economic outlook and the upcoming RBNZ Rate Statement, tomorrow at 20:00 GMT.

• The unemployment rate fell to 4.5% in Dec qtr 2017 due to employment expanding by +0.5%/qtr and the participation rate ticking down to 71%. Private sector wages growth remained at 1.9%/yr. Average hourly earnings jumped by +0.8%/qtr (mkt +0.5%) reflecting the fact that all the jobs created in the quarter were full-time.
• Wages growth tracked sideways, but minimum wage increases begin from 1 April, and historically trickles up through to skilled workers. This wages growth coincides with the populist policy of curbing immigration, limiting worker supply. This was key to the business confidence slump in the final months of 2017.
• For the government and the RBNZ: yes the unemployment rate is higher than the 3.3% reached a decade ago, but back then the cash rate had to be lifted to 8.25% to cool the then overheating economy. We still don't know what the 'expanded RBNZ mandate' is.
• An unchanged OCR at 1.75% next week is a given. However, look out for RBNZ Governor Spencer having to comment on the TWI, at 75.4 may no longer be 'fair value'.